Making sense of the wilderness called politics when what is said is not necessarily what is meant.

Tuesday, December 30, 2008

Bartering - Is it Really A Primitive Option Now?

I stumbled upon this interesting article about bartering. US consumers are saving up every penny they can. Spending has gone down a fair bit. Luxury item sales have plummeted. Banks are running out of liquidity to support businesses. Businesses on the other hand cannot establish solid cash flow to survive. Is it primitive to research whether bartering could be a transitional fix?

With US being bankrupt with excessive toxic debts and every sector having a plastic cup in their hands at the Hill, Tun Mahathir had urged numerous times to switch to Gold Dinar, practically back in the old days where currency produced is proportionate to gold reserve. The monetary rule correlating currency to gold was governed by the Bretton Woods Agreement, signed by 44 countries after the second World War. In addition, TDM also suggested that if a country trades RM10M worth of goods to a nation that exchanges that trade with products worth RM1M, only the difference of RM1M will be paid, which is how banks handle cheque payments with other banks.

"Most people associate bartering with poor or undeveloped societies, or with small, infrequent, and informal exchanges made within economies that use traditional currency. Bartering has also had a role when once robust economies falter. During the Depression, for example, farmers directly traded crops and other services with each other, since what little money the farmers had was of negligible value. And after the Soviet Union fell apart, inflation was so high that individuals and businesses found it safer to trade goods and services directly. (Traditional currency was still used, but the street value of the currency stretched to fit the need of the purchased item: rubles used to buy staples such as food were considered to be of greater value than rubles used to buy luxury items such as fur coats.)

We now see a growing movement of individuals and businesses that prefer to use bartering in a wide variety of transactions, including multi-million-dollar purchases. In New Zealand, a house and surrounding property, valued at 5.1 million United States dollars, was sold for 1.7 Barterdollars (BDs), a form of credit used by about 9,000 individuals and 50 businesses in four countries. Though the deal did not involve legal tender, it is not illegal, and a contract secured the sale through business property owned by the buyer. In this case, the seller will use most of the BDs to obtain plumbing and electrical work -- for both office space and his new home -- from the buyer, who owns a business that provides these services. The seller is under no obligation to use the BDs this way, however, and can spend them elsewhere or simply save them as credits for later use. There is, however, little incentive to save, because, as with most barter systems, the currency does not generate interest. This also applies to loans: several bartering organizations have set up facilities that lend currency in exchange for an agreement that stipulates that the borrower will "pay" it back with products and services over a set period of time, interest-free, though a transaction fee is charged.

Community-based non-profit bartering is generally not subject to taxation, but virtually all governments consider bartering by businesses identical to cash transactions, and taxes need to be paid accordingly. However, the nature of these transactions has made them harder for governments to track, especially as bartering on the Internet has become more popular. Determining the value of the terms of a barter can also be problematic. If A designs a website for B in exchange for barter credits, A should pay taxes on the value of the services provided, while B can consider the credits as a business expense. For tax purposes, A has an incentive to underestimate the value of the transaction and B has an incentive to overestimate. To minimize this sort of problem, some governments have set a standard, so that 1 credit in a non-governmental but nationally recognized barter system corresponds to a certain valuation of the official currency".